a

GAO

United States Government Accountability Office

Testimony

Before the Subcommittee on Commercial and 

Administrative Law, Committee on the Judiciary, House of 

Representatives

For Release on Delivery

Expected at 10:00a.m. EST

Tuesday, November 1, 2005

FEDERAL RULEMAKING

Past Reviews and 

Emerging Trends Suggest 

Issues That Merit 

Congressional Attention

Statement of J. Christopher Mihm

Managing Director, Strategic Issues

GAO-06-228T
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

www.gao.gov/cgi-bin/getrpt?GAO-06-228T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact J. Christopher 

Mihm at (202) 512-6806 or mihmj@gao.gov. 

Highlights of GAO-06-228T, a testimony 

before the Subcommittee on Commercial 

and Administrative Law, Committee on the 

Judiciary, House of Representatives 

November 1, 2005

FEDERAL RULEMAKING 

Past Reviews and Emerging Trends 

Suggest Issues That Merit Congressional 

Attention 

GAO’s prior evaluations highlighted both benefits and weaknesses of 

rulemaking procedures and practices in areas such as (1) regulatory analysis 

and accountability requirements, (2) presidential and congressional 

oversight of agency rulemaking, and (3) notice and comment rulemaking 

procedures under the Administrative Procedure Act (APA). 

GAO’s reviews identified at least four overall benefits associated with 

existing regulatory analysis and accountability requirements: encouraging 

and facilitating greater public participation in rulemaking; improving the 

transparency of the rulemaking process; increasing the attention directed to 

rules; and increasing expectations regarding the analytical support for 

proposed rules. On the other hand, GAO identified at least four recurring 

reasons why such requirements have not been more effective: unclear key 

terms and definitions; limited scope and coverage; uneven implementation 

by agencies; and a predominant focus on just one part of the regulatory 

process. 

With regard to executive branch and congressional oversight of agencies’ 

rulemaking, GAO has noted that efforts to increase presidential influence 

and authority over the regulatory process, through mechanisms such as the 

Office of Management and Budget’s reviews of agencies’ rulemaking, have 

become more significant over the years. However, mechanisms intended to 

increase congressional influence, such as procedures for disapproval of 

regulations under the Congressional Review Act, appear to have been less 

able to influence changes in agencies’ rules to date. 

GAO’s reviews of agencies’ compliance with rulemaking requirements under 

APA pointed out that agencies often did not published notices of proposed 

rulemaking (to solicit public comments) before issuing final rules, including 

some major rules with an impact of $100 million or more on the economy. 

APA provides exceptions to notice and comment requirements for “good 

cause” and other reasons, but GAO noted that agencies’ explanations for use 

of such exceptions were sometimes unclear. Also, several analytical 

requirements for proposed rules do not apply if an agency does not publish a 

proposed rule. However, some of the growth in final rules without proposed 

rules appeared to reflect increased use of “direct final” and “interim final” 

procedures intended for noncontroversial and expedited rulemaking. 

The findings and emerging issues reported in GAO’s body of regulatory work 

suggested four areas on which Congress might consider taking action or 

studying further: (1) generally reexamining rulemaking structures and 

processes, (2) addressing previously identified weaknesses of existing 

statutory requirements, (3) promoting additional improvements in the 

transparency of agencies’ rulemaking actions, and (4) opening a broader 

examination of how developments in information technology might affect 

the notice and comment rulemaking process. 

Federal regulation is one of the 

basic tools of government used to 

implement public policy. Agencies 

publish thousands of regulations 

each year to achieve goals such as 

ensuring that workplaces, air 

travel, and food are safe; that the 

nation’s air, water, and land are not 

polluted; and that the appropriate 

amount of taxes are collected. 

Because regulations affect so many 

aspects of citizens’ lives, it is 

crucial that rulemaking procedures 

and practices be effective and 

transparent. 

GAO, at the request of Congress, 

has prepared over 60 reports and 

testimonies during the past decade 

that review aspects of federal 

rulemaking procedures and 

practices. This testimony 

summarizes some of the general 

findings and themes that have 

emerged from GAO’s body of work 

on federal regulatory processes and 

procedures, including areas on 

which Congress might consider 

taking legislative action or 

sponsoring further study. GAO’s 

prior reports and testimonies 

contain a variety of 

recommendations to improve 

various aspects of rulemaking 

procedures and practices. 
Page 1 GAO-06-228T 

Mr. Chairman and Members of the Subcommittee:

I am pleased to be here today to contribute to your overview of 

administrative law, process, and procedure, including issues associated 

with federal rulemaking. In my statement today, I will summarize some of 

the general findings and themes that have emerged from our body of work 

on federal regulatory processes and procedures, including areas on which 

the subcommittee might consider taking legislative action or sponsoring 

further study. 

In brief, our prior work identified important benefits of laws and executive 

orders designed to enhance federal rulemaking, such as enhanced 

transparency of the process. But we have also pointed out potential 

weaknesses and impediments to realizing expected improvements in the 

process, such as a lack of clarity in key terms and definitions associated 

with some regulatory analysis and accountability requirements. In 

addition, some trends and changes in the rulemaking environment that 

have emerged over the years might merit closer congressional attention 

and consideration of whether adjustments in federal rulemaking 

procedures and practices are needed to keep pace. 

Prior GAO Work 

Identified Benefits and 

Weaknesses of 

Rulemaking 

Procedures and 

Practices

Federal regulation, like taxing and spending, is one of the basic tools of 

government used to implement public policy. Agencies publish thousands 

of regulations each year to achieve goals such as ensuring that workplaces, 

air travel, and food are safe; that the nation’s air, water, and land are not 

polluted; and that the appropriate amounts of taxes are collected. Because 

regulations affect so many aspects of citizens’ lives, it is crucial that 

rulemaking procedures and practices be effective and transparent. Over 

the last decade, at the request of Congress, we have prepared over 60 

reports and testimonies reviewing crosscutting aspects of those 

rulemaking procedures and practices.1

 

I would like to focus my remarks on topics or themes emerging from this 

work that are most relevant to this subcommittee’s oversight agenda. 

These include: (1) regulatory analysis and accountability requirements, 

(2) presidential and congressional oversight of agency rulemaking, and

1

Attached to this statement are the highlights pages from some of those reports and 

testimonies. We have also included a more extensive list of related GAO products at the end 

of this statement.
Page 2 GAO-06-228T 

(3) notice and comment rulemaking procedures under the Administrative 

Procedure Act (APA).2

Regulatory Analysis and 

Accountability 

Requirements

Congress has frequently asked us to evaluate the effectiveness of 

requirements that were initiated over the past 25 years to improve the 

federal regulatory process. Among the goals of these requirements are 

reducing regulatory burdens, requiring more rigorous regulatory analysis, 

and enhancing oversight of agencies’ rulemaking. We have paid repeated 

attention to agencies’ compliance with some of these requirements, such as 

ones in the Paperwork Reduction Act (PRA),3

 Regulatory Flexibility Act 

(RFA),4

 Unfunded Mandates Reform Act (UMRA),5 Congressional Review 

Act (CRA),6

 and Executive Order 12866 on regulatory planning and review.7

Our reviews identified at least four overall benefits associated with existing 

regulatory analysis and accountability requirements:

• Encouraging and facilitating greater public participation in 

rulemaking—Some initiatives have encouraged and facilitated greater 

public participation and consultation in rulemaking. Opportunities for 

the public to communicate with agencies by electronic means have 

expanded and requirements imposed by some regulatory reform 

initiatives encouraged additional consultation with the parties that 

might be affected by rules under development by federal agencies. 

• Improving the transparency of the rulemaking process—The initiatives 

implemented over the past 25 years have helped to make the rulemaking 

process more open by facilitating public access to information, 

providing more information about the potential effects of rules and 

2

Pub. L. No. 404, 60 Stat. 237 (1946), codified in 1966 in scattered sections of title 5, United 

States Code.

3

44 U.S.C. §§ 3501-3520.

4

5 U.S.C. §§ 601-612.

5

Pub. L. No. 104-4, 109 Stat. 48 (1995), codified as amended in scattered sections of title 2, 

United States Code.

6

5 U.S.C. §§ 801-808.

7

Exec. Order No. 12866, 58 Fed. Reg. 51,735 (Sept. 30, 1993). 
Page 3 GAO-06-228T 

available alternatives, and requiring more documentation and 

justification of agencies’ decisions. Although we have often 

recommended that more could be done to increase transparency, we 

have also highlighted the valuable contribution made when agencies had 

particularly clear and complete documentation supporting their 

rulemaking.

• Increasing the attention directed to rules and rulemaking—Our 

reports have pointed out that oversight of agencies’ rulemaking from 

various sources—including Congress, the administration, and GAO, 

among others—can result in useful changes to rules. Furthermore, we 

noted that agencies’ awareness of this added scrutiny may provide an 

important indirect effect, potentially leading to less costly, more 

effective rules.

• Increasing expectations regarding the analytical support for proposed 

rules—The analytical requirements that have been added over the years 

have raised the bar regarding the information and analysis needed to 

support policy decisions underlying regulations. Such requirements 

have also prompted agencies to provide more data on the expected 

benefits and costs of their rules and encouraged the identification and 

consideration of available alternatives. 

On the other hand, we also identified at least four recurring reasons why 

the requirements imposed by such initiatives have not been more effective:

• Lack of clarity and other weaknesses in key terms and definitions—

Unclear terms and definitions can affect the applicability and 

effectiveness of certain requirements. For example, we have frequently 

cited the need to clarify key terms in RFA. RFA’s analytical 

requirements, which are intended to help address concerns about the 

impact of rules on small entities, do not apply if an agency head certifies 

that a rule will not have a “significant economic impact on a substantial 

number of small entities.” However, RFA neither defines this key phrase 

nor places clear responsibility on any party to define it consistently 

across the government. Not surprisingly, we found that agencies’ 

compliance with RFA varied widely from one agency to another and 

agencies had different interpretations of RFA’s requirements. In another 

example, our review of agencies’ compliance with a requirement to 

adjust civil monetary penalties for inflation under the Federal Civil
Page 4 GAO-06-228T 

Penalties Inflation Adjustment Act (Inflation Adjustment Act),8

indicated that both a lack of clarity and apparent shortcomings in some 

of the Act’s provisions appeared to have prevented agencies from 

keeping their penalties in pace with inflation.9

 Although we 

recommended changes to address these shortcomings, to date Congress 

has not acted on our recommendations. 

• Limited scope and coverage of various requirements—Simply put, 

some rulemaking requirements apply to few rules or require little new 

analysis for the rules to which they apply. For example, we pointed out 

last year that the relatively small number of rules identified as 

containing mandates under UMRA could be attributed in part to the 14 

different exemptions, exclusions, and other restrictions on the 

identification of regulatory mandates under the Act. We also observed 

unintended “domino” effects of making certain requirements contingent 

on other requirements. For example, some requirements only apply to 

rules for which an agency published a notice of proposed rulemaking, 

but, as I will discuss later, we found that agencies issue many final rules 

without associated proposed rules. In addition, the requirement for 

“look back” reviews of existing regulations under section 610 of RFA 

only applies if the agency determined that its rule would have a 

significant economic impact on a substantial number of small entities. 

When RFA was amended in 1996 by the Small Business Regulatory 

Enforcement Fairness Act (SBREFA)10 to require additional actions, 

such as preparing compliance guides and convening advocacy review 

panels for certain rules, this appeared to prompt a reduction in the 

number of rules that the Environmental Protection Agency identified as 

affecting small entities (and would therefore trigger the new 

requirements).

• Uneven implementation of the initiatives’ requirements—Sometimes, 

agencies’ implementation of various requirements serves to limit their 

effectiveness. For example, a recurring message in our reports over the 

8

28 U.S.C. § 2461 note.

9

GAO, Civil Penalties: Agencies Unable to Fully Adjust Penalties for Inflation Under 

Current Law, GAO-03-409 (Washington, D.C.: Mar. 14, 2003). We also addressed issues 

regarding civil penalties in GAO, Tax Administration: Systematic Information Sharing 

Would Help IRS Determine the Deductibility of Civil Settlement Payments, GAO-05-747

(Washington, D.C.: Sept. 15, 2005). 

105 U.S.C. § 601 note.
Page 5 GAO-06-228T 

years is that some agencies’ economic analyses need improvement. Our 

reviews have found that economic assessments that analyze regulations 

prospectively are often incomplete and inconsistent with general 

economic principles.11 Moreover, the assessments are not always useful 

for comparisons across the government, because they are often based 

on different assumptions for the same key economic variables.12 In our 

recent report on UMRA, we noted that parties from various sectors 

expressed concerns about the accuracy and completeness of agencies’ 

cost estimates, and some also emphasized that more needed to be done 

to address the benefits side of the equation.13 Our reviews have found 

that not all benefits are quantified and monetized by agencies, partly 

because of the difficulty in estimation. In our recent report on the 

Paperwork Reduction Act, we noted that the Act requires chief 

information officers (CIO) to review and certify information collections 

to help minimize collection burdens, but our analysis of case studies 

showed that CIOs provided these certifications despite often missing or 

inadequate support from the program offices sponsoring the 

collections.14

• A predominant focus on just one part of the regulatory process—More 

analytical and procedural requirements have focused on agencies’ 

development of rules than on other phases of the regulatory process, 

from the underlying statutory authorization, through effective 

implementation and monitoring of compliance with regulations, to the 

evaluation and revision of existing rules. While rulemaking is clearly an 

important point in the regulatory process, these other phases also help 

determine the effectiveness of federal regulation.

11See GAO, Regulatory Reform: Agencies Could Improve Development, Documentation, 

and Clarity of Regulatory Economic Analyses, GAO/RCED-98-142 (Washington, D.C.: May 

26, 1998), and Clean Air Act: Observations on EPA’s Cost-Benefit Analysis of Its Mercury 

Control Options, GAO-05-252 (Washington, D.C.: Feb. 28, 2005). 

12See also GAO, Economic Performance: Highlights of a Workshop on Economic 

Performance Measures, GAO-05-796SP (Washington, D.C.: July 2005).

13GAO, Unfunded Mandates: Views Vary About Reform Act’s Strengths, Weaknesses, and 

Options for Improvement, GAO-05-454 (Washington, D.C.: Mar. 31, 2005).

14GAO, Paperwork Reduction Act: New Approach May Be Needed to Reduce Government 

Burden on Public, GAO-05-424 (Washington, D.C.: May 20, 2005).
Page 6 GAO-06-228T 

Oversight of Agency 

Rulemaking

Closely related to regulatory analysis and accountability requirements are 

efforts to enhance the oversight of agencies’ rulemaking by Congress, the 

President, and the judiciary. In general, efforts to increase presidential 

influence and authority over the regulatory process, primarily through the 

mechanism of Office of Management and Budget (OMB) review of 

agencies’ rulemaking, have become more significant and widely used over 

the years. However, our reviews suggest that mechanisms to increase 

congressional influence, such as procedures for Congress to disapprove 

proposed rules, appear to have been less able to influence changes in 

agencies’ rules to date. We have not done work that directly addresses 

issues regarding judicial review of agencies’ rulemaking.

In our September 2003 report on OMB’s role in reviews of agencies’ rules, 

we recounted the history of centralized review of agencies’ regulations 

within the Executive Office of the President.15 We noted the expansion of 

OMB’s role in the rulemaking process over the past 30 years under various 

executive orders. Although not without controversy, this expansion of a 

centralized regulatory review function has become well established. 

OMB’s role in the rulemaking process has been further enhanced by 

provisions in various statutes (such as the Information Quality Act,16 PRA, 

and UMRA) that placed additional oversight responsibilities on OMB. The 

formal process by which OMB currently reviews agencies’ proposed and 

final rules has essentially remained unchanged since Executive Order 

12866 was issued in 1993, but we reported on several changes in OMB 

policies in recent years that affected the process, such as increased 

emphasis on economic analysis, stricter adherence to the 90-day time limit 

for reviews of agencies’ draft rules, and improvements in the transparency 

of the OMB review process (although some elements of the transparency of 

that process are still unclear). Based on our review of OMB and agency 

dockets on 85 rules reviewed by OMB during a 1-year period, we also 

showed that OMB’s reviews sometimes result in significant changes to 

agencies’ draft rules.

15GAO, Rulemaking: OMB’s Role in Reviews of Agencies’ Draft Rules and the 

Transparency of Those Reviews, GAO-03-929 (Washington, D.C.: Sept. 22, 2003).

16The Information Quality Act is also known as the Data Quality Act. Consolidated 

Appropriations—Fiscal Year 2001, Pub. L. No. 106-554, § 515, 114 Stat. 2763A to 2763A-154 

(2001).
Page 7 GAO-06-228T 

The Congressional Review Act was enacted as part of SBREFA in 1996 to 

better ensure that Congress has an opportunity to review, and possibly 

reject, rules before they become effective. CRA established expedited 

procedures by which members of Congress may disapprove agencies’ rules 

by introducing a resolution of disapproval that, if adopted by both Houses 

of Congress and signed by the President, can nullify an agency’s rule. 

However, this disapproval process has only been used once, in 2001, when 

Congress disapproved the Department of Labor’s rule on ergonomics.17 

CRA also requires agencies to file final rules with both Congress and GAO 

before the rules can become effective. Our role under CRA is to provide 

Congress with a report on each major rule (for example, those with a $100 

million impact on the economy) that includes GAO’s assessment of the 

issuing agency’s compliance with the procedural steps required by various 

acts and executive orders governing the rulemaking process. Although we 

reported that agencies’ compliance with CRA requirements was 

inconsistent during the first years after its enactment, compliance 

improved.18

Congress also passed the Truth in Regulating Act19 (TIRA) in 2000 to 

provide a mechanism for it to obtain more information about certain rules. 

TIRA contemplated a 3-year pilot project during which GAO would perform 

independent evaluations of “economically significant” agency rules when 

requested by a chairman or ranking member of a committee of jurisdiction 

of either House of Congress. However, during the 3-year period 

contemplated for the pilot project, Congress did not enact any specific 

appropriation to cover TIRA evaluations, as called for in the Act, and the 

authority for the 3-year pilot project expired on January 15, 2004. 

Therefore, we have no information on the potential effectiveness of this 

mechanism.

17Pub. L. No. 107-5, 115 Stat. 7 (Mar. 20, 2001).

18As noted in GAO-04-637, our Office of General Counsel also takes several steps to assure 

the completeness of the list of major rules identified in GAO’s compilation of reports on 

major rules. GAO’s Federal Rules Database is publicly available at www.gao.gov under 

Legal Products.

19Pub. L. No. 106-312, 114 Stat. 1248 (Oct. 17, 2000), 5 U.S.C. § 801 note.
Page 8 GAO-06-228T 

Rulemaking Procedures 

under the Administrative 

Procedure Act

Some of our reviews have touched on agencies’ compliance with APA. APA 

established the most long-standing and broadly applicable federal 

requirements for informal rulemaking, also known as notice and comment 

rulemaking.20 Among other things, APA generally requires that agencies 

publish a notice of proposed rulemaking (NPRM) in the Federal Register.

21 

After giving interested persons an opportunity to comment on the proposed 

rule, and after considering the public comments, the agency may then 

publish the final rule. However, APA provides exceptions to these 

requirements, including cases when, for “good cause,” an agency finds that 

notice and comment procedures are “impracticable, unnecessary, or 

contrary to the public interest,” and interpretive rules.22 When agencies use 

the “good cause” exception, APA requires that they explicitly say so and 

provide a rationale for the exception’s use when the rule is published in the 

Federal Register. An agency’s claim of an exception to notice and 

comment procedures is subject to judicial review. The legislative history of 

APA, and associated case law, generally reinforce the view that the “good 

cause” exception should be narrowly construed. In addition, the 

Administrative Conference of the United States (ACUS) encouraged 

agencies to use notice and comment procedures where not strictly required 

by APA and recommended that Congress eliminate or narrow several of the 

exceptions in APA. 

In various reports over the years, we noted that agencies had not issued 

NPRMs before publishing certain final rules.23 When we reported on this 

issue in 1998, we estimated that about half of all final actions published in 

1997 had been issued without an associated NPRM.24 Although many of 

those final actions without proposed rules were minor actions, 11 of the 61 

205 U.S.C. § 553.

21APA includes exceptions to notice and comment procedures for categories of rules such as 

those dealing with military or foreign affairs and also agency management and personnel. 5 

U.S.C. § 553(a).

225 U.S.C. § 553(b).

23An earlier study concluded that NPRMs were not published for about one-third of final 

regulatory actions published in the Federal Register. See Juan J. Lavilla, The Good Cause 

Exemption to Notice and Comment Rulemaking Requirements Under the Administrative 

Procedure Act, 3 Admin. L. J. 317 (1989).

24GAO, Federal Rulemaking: Agencies Often Published Final Actions Without Proposed 

Rules, GAO/GGD-98-126 (Washington, D.C.: Aug. 31, 1998).
Page 9 GAO-06-228T 

major rules (for example, those with an impact of $100 million or more) did 

not have NPRMs.25 While we have not studied this issue in depth since 

1998, we continued to find the prevalence of final rules without proposed 

rules during our reviews. For example, during our review of the 

identification of federal mandates under UMRA in 2001 and 2002, we found 

that 28 of the 65 major rules that imposed new requirements on nonfederal 

parties did not have NPRMs.26 

We have also reported that agencies’ explanations for use of APA’s “good 

cause” exception were sometimes unclear, for example, simply stating that 

notice and comment would delay rules that were, in some general way, in 

the public interest. We noted that, when agencies publish final rules 

without NPRMs, the public’s ability to participate in the rulemaking 

process is limited. Also, several regulatory reform requirements that 

Congress has enacted during the past 25 years—such as RFA’s and UMRA’s 

analytical requirements—use as their trigger the publication of an NPRM. 

Therefore, it is important that agencies clearly explain why notice and 

comment procedures are not followed. 

At the same time, the number of final rules without proposed rules appears 

to reflect, at least in part, agencies’ acceptance of procedures for 

noncontroversial and expedited rulemaking actions known as “direct final” 

and “interim final” rulemaking that were previously recommended by 

ACUS.27 Although we observed some differences in how agencies 

implement direct final rulemaking, it generally involves publication of a 

rule with a statement that the rule will be effective on a particular date 

unless an adverse comment is received within a specified period of time 

(such as 30 days). For example, the Federal Aviation Administration (FAA) 

has used direct final rulemaking procedures nearly 40 times this year to 

modify the legal descriptions of controlled airspace at various airports 

across the country. FAA issued these modifications as direct final rules 

25Of the 122 major rules submitted to GAO during the first 2 years of the Congressional 

Review Act (April 1996 through March 1998), 23 were issued without a previous NPRM. See 

GAO, Regulatory Reform: Major Rules Submitted for Congressional Review During the 

First 2 Years, GAO/GGD-98-102R (Washington, D.C.: Apr. 24, 1998).

26GAO, Unfunded Mandates: Analysis of Reform Act Coverage, GAO-04-637 (Washington, 

D.C.: May 12, 2004).

27See recommendation 95-4, 60 Fed. Reg. 43108 (Aug. 18, 1995). In 1993, the National 

Performance Review also encouraged agencies to use direct final rulemaking for 

noncontroversial rules.
Page 10 GAO-06-228T 

because it anticipated no adverse or negative comments. FAA also noted 

that these regulations only involve an established body of technical 

regulations for which frequent and routine amendments are necessary to 

keep them operationally current. If an adverse comment is received on a 

direct final rule, the agency withdraws the direct final rule and may publish 

the rule as a proposed rule under normal notice and comment procedures. 

For interim rulemaking, an agency issues a final rule without an NPRM that 

is generally effective immediately, but with a postpromulgation opportunity 

for the public to comment. Public comments may persuade the agency to 

later revise the interim rule. Although neither direct nor interim final 

rulemaking are specifically mentioned in APA, both may be viewed as an 

application of the “good cause” exception in APA. 

Direct and interim final rules appear to account for hundreds of the final 

regulatory actions published each year. In our report on final rules without 

proposed rules, we identified 718 interim and direct final regulatory actions 

published by agencies during 1997. A quick search of recent Federal 

Register notices showed that agencies published over 550 notices in 2004 

for which the subject rulemaking action was identified as a direct final, 

interim final, or interim rule. Through October 21 of this year, agencies had 

published nearly 400 such notices. Direct final rules accounted for almost 

60 percent of these notices.

Some Issues and 

Emerging Trends Merit 

Attention

The findings and emerging issues reported in our body of work on federal 

rulemaking suggest a few areas on which the subcommittee might consider 

taking legislative action or sponsor further study:

• generally reexamine rulemaking structures and processes, including the 

APA;

• address previously identified weaknesses of existing statutory 

requirements;

• promote additional improvements in the transparency of agencies’ 

rulemaking actions; and

• open a broader examination of how developments in information 

technology might affect the notice and comment rulemaking process.
Page 11 GAO-06-228T 

Generally Reexamine 

Rulemaking Structures and 

Processes, Including the 

APA 

As we have noted in several products this year, we believe that it is 

appropriate and necessary to begin taking a broad reexamination of what 

the federal government does and how it does it, especially given the fiscal 

challenges facing the country.28 Although the federal rulemaking process 

does not have much direct impact on the federal budget—given that most 

costs of regulation fall on regulated parties and their customers or clients—

we have testified that it nevertheless should be part of that reexamination. 

We recognize that a successful reexamination of the base of the federal 

government will entail multiple approaches over a period of years. No 

single approach or reform can address all of the questions and program 

areas that need to be revisited. However, as we have previously stated, 

federal regulation is a critical tool of government, and regulatory programs 

play a key part in how the federal government addresses many of the 

country’s needs. This subcommittee has already begun such a 

reexamination through its current oversight agenda, and ACUS, if funded, 

might well play a valuable role in carrying out the detailed research that 

will be needed.

One emerging trend that any such reexamination should take into account 

is the evolution of the markets and industries that federal agencies 

regulate. Changes in the regulatory environment, especially the growing 

influence of the global economy, have implications for federal rulemaking 

procedures and practices. For example, agency officials pointed out to us 

in 1999 the growing importance of international standards and standardsetting bodies, alongside the role of international agreements, in producing 

certification standards of interest and importance to American businesses. 

More recently, international developments regarding global harmonization 

of regulatory standards, chemical risk-assessment requirements, Internet 

governance issues, and compliance with capital standards and 

requirements for financial institutions have attracted attention in the 

regulatory arena.

More specifically, Congress might want to revisit APA in view of changes in 

agencies’ practices over time, such as greater use of interim and direct final 

28See GAO, 21st Century Challenges: Reexamining the Base of the Federal Government, 

GAO-05-325SP (Washington, D.C.: Feb. 2005); 21st Century Challenges: Transforming 

Government to Meet Current and Emerging Challenges, GAO-05-830T (Washington, D.C.: 

July 13, 2005); and Regulatory Reform: Prior Reviews of Federal Regulatory Process 

Initiatives Reveal Opportunities for Improvements, GAO-05-939T (Washington, D.C.: July 

27, 2005).
Page 12 GAO-06-228T 

rulemaking for certain regulations. For example, we observed that some 

agencies differed in their policies and practices regarding direct final 

rulemaking. Whether there should be one standard approach to such 

rulemaking by federal agencies is an open question. In addition, although 

direct final rulemaking had been viewed by ACUS as permissible under the 

APA, ACUS nevertheless suggested that Congress may wish to expressly 

authorize the process to alleviate any uncertainty and reduce the potential 

for litigation. With regard to interim final rulemaking, ACUS had similarly 

recommended that, when APA is reviewed, Congress amend the Act to 

mandate use of postpromulgation comment procedures for rules issued 

under the “good cause” exception.

Address Previously 

Identified Weaknesses of 

Existing Statutory 

Requirements

Our prior reviews have identified many opportunities to revisit and refine 

existing regulatory requirements. Although progress has been made to 

implement recommendations we raised in past reports, there are still 

unresolved issues. We still believe, for example, that the promise of RFA 

may never be realized until key terms and definitions, such as “substantial 

number of small entities,” are clarified and/or an entity with the authority 

and responsibility to do so is established. Similarly, we believe that civil 

penalties are an important element of regulatory enforcement and 

deterrence, but we found that agencies are unable to fully adjust their 

penalties for inflation under the provisions of current law. Congressional 

action is needed to address these issues. 

Promote Additional 

Improvements in the 

Transparency of Agencies’ 

Rulemaking Actions

As pointed out earlier, we have identified many positive developments 

regarding the transparency of the regulatory process, but more could be 

done. For example, additional attention could be paid to agencies’ 

explanations for statements or certifications that certain requirements do 

not apply. This is another area that might merit additional study of 

available options. Some uses of exemptions, such as agencies’ claims that 

a rule does not contain a federal mandate as defined by UMRA or that a 

proposed rule has no federalism impacts, do not require the agency to 

provide any more support than the certification itself. Other uses, such as 

claims of “good cause” to publish final rules without proposed rules, 

require agencies to provide a clear statement and explanation (although 

even here we noted that sometimes agencies’ explanations were vague). 

This raises the question of whether there should be a more demanding 

requirement for agencies to essentially “show their work” behind such 

certifications, and, if so, what form such requirements might take.
Page 13 GAO-06-228T 

Open a Broader 

Examination of How 

Developments in 

Information Technology 

Might Affect the 

Rulemaking Process

One emerging trend we have observed in our work is the expanded role of 

technology-based innovations in enhancing the regulatory process. 

Agencies’ use of the Internet and other technologies to enhance the 

regulatory process has rapidly increased in importance. In about 5 years, 

we have gone from reporting on and encouraging the early development of 

some innovative technologies in support of rulemaking to reporting on the 

implementation of governmentwide e-government initiatives, such as 

Regulations.gov and the centralized electronic docket for executive branch 

agencies.29 The increased use of technology-based innovations may 

provide opportunities to transform the rulemaking process, not simply to 

replace “paper” processes with electronic versions. Continued study is 

therefore warranted of how such initiatives can open additional 

opportunities for public participation in and access to information about 

federal rulemaking, as well as how information technology can be used to 

improve the federal government’s ability to analyze public comments. 

Mr. Chairman, this concludes my prepared statement. Once again, I 

appreciate the opportunity to testify on these important issues. I would be 

pleased to address any questions you or other members of the committee 

might have at this time. 

If additional information is needed regarding this testimony, please contact 

J. Christopher Mihm, Managing Director, Strategic Issues, at (202) 512-6806 

or mihmj@gao.gov. 

29See GAO, Federal Rulemaking: Agencies’ Use of Information Technology to Facilitate 

Public Participation, GAO/GGD-00-135R (Washington, D.C.: June 30, 2000); Electronic 

Government: Government Paperwork Elimination Act Presents Challenges for Agencies, 

GAO/AIMD-00-282 (Washington, D.C.: Sept. 15, 2000); Regulatory Management: 

Communication About Technology-Based Innovations Can Be Improved, GAO-01-232

(Washington, D.C.: Feb. 12, 2001); Electronic Rulemaking: Efforts to Facilitate Public 

Participation Can Be Improved, GAO-03-901 (Washington, D.C.: Sept. 17, 2003); and 

Electronic Rulemaking: Progress Made in Developing Centralized E-Rulemaking System, 

GAO-05-777 (Washington, D.C.: Sept. 9, 2005).
Page 14 GAO-06-228T 

Related GAO Products

Electronic Rulemaking: Progress Made in Developing Centralized ERulemaking System. GAO-05-777. Washington, D.C.: September 9, 2005.

Regulatory Reform: Prior Reviews of Federal Regulatory Process 

Initiatives Reveal Opportunities for Improvements. GAO-05-939T. 

Washington, D.C.: July 27, 2005.

Economic Performance: Highlights of a Workshop on Economic 

Performance Measures. GAO-05-796SP. Washington, D.C.: July 2005.

Paperwork Reduction Act: New Approach May Be Needed to Reduce 

Government Burden on Public. GAO-05-424. Washington, D.C.: May 20, 

2005.

Unfunded Mandates: Views Vary About Reform Act’s Strengths, 

Weaknesses, and Options for Improvement. GAO-05-454. Washington, 

D.C.: March 31, 2005.

21st Century Challenges: Reexamining the Base of the Federal 

Government. GAO-05-325SP. Washington, D.C.: February 2005.

Electronic Government: Federal Agencies Have Made Progress 

Implementing the E-Government Act of 2002. GAO-05-12. Washington, 

D.C.: December 10, 2004.

Unfunded Mandates: Analysis of Reform Act Coverage. GAO-04-637. 

Washington, D.C.: May 12, 2004.

Paperwork Reduction Act: Agencies’ Paperwork Burden Estimates Due to 

Federal Actions Continue to Increase. GAO-04-676T. Washington, D.C.: 

April 20, 2004.

Rulemaking: OMB’s Role in Reviews of Agencies’ Draft Rules and the 

Transparency of Those Reviews. GAO-03-929. Washington, D.C.: 

September 22, 2003.

Electronic Rulemaking: Efforts to Facilitate Public Participation Can Be 

Improved. GAO-03-901. Washington, D.C.: September 17, 2003.

Civil Penalties: Agencies Unable to Fully Adjust Penalties for Inflation 

Under Current Law. GAO-03-409. Washington, D.C.: March 14, 2003.
Related GAO Products

Page 15 GAO-06-228T 

Regulatory Flexibility Act: Clarification of Key Terms Still Needed. GAO02-491T. Washington, D.C.: March 6, 2002.

Regulatory Reform: Compliance Guide Requirement Has Had Little 

Effect on Agency Practices. GAO-02-172. Washington, D.C.: December 28, 

2001.

Federal Rulemaking: Procedural and Analytical Requirements at OSHA 

and Other Agencies. GAO-01-852T. Washington, D.C.: June 14, 2001.

Regulatory Flexibility Act: Key Terms Still Need to Be Clarified. GAO-01-

669T. Washington, D.C.: April 24, 2001.

Regulatory Reform: Implementation of Selected Agencies’ Civil Penalties 

Relief Policies for Small Entities. GAO-01-280. Washington, D.C.: February 

20, 2001.

Regulatory Management: Communication About Technology-Based 

Innovations Can Be Improved. GAO-01-232. Washington, D.C.: February 

12, 2001.

Regulatory Flexibility Act: Implementation in EPA Program Offices and 

Proposed Lead Rule. GAO/GGD-00-193. Washington, D.C.: September 20, 

2000.

Electronic Government: Government Paperwork Elimination Act 

Presents Challenges for Agencies. GAO/AIMD-00-282. Washington, D.C.: 

September 15, 2000.

Regulatory Reform: Procedural and Analytical Requirements in Federal 

Rulemaking. GAO/T-GGD/OGC-00-157. Washington, D.C.: June 8, 2000.

Certification Requirements: New Guidance Should Encourage 

Transparency in Agency Decisionmaking. GAO/GGD-99-170. Washington, 

D.C.: September 24, 1999.

Federalism: Previous Initiatives Have Little Effect on Agency 

Rulemaking. GAO/T-GGD-99-131. Washington, D.C.: June 30, 1999.

Regulatory Accounting: Analysis of OMB’s Reports on the Costs and 

Benefits of Federal Regulation. GAO/GGD-99-59. Washington, D.C.: April 

20, 1999.
Related GAO Products

Page 16 GAO-06-228T 

Regulatory Flexibility Act: Agencies’ Interpretations of Review 

Requirements Vary. GAO/GGD-99-55. Washington, D.C.: April 2, 1999.

Regulatory Burden: Some Agencies’ Claims Regarding Lack of 

Rulemaking Discretion Have Merit. GAO/GGD-99-20. Washington, D.C.: 

January 8, 1999.

Federal Rulemaking: Agencies Often Published Final Actions Without 

Proposed Rules. GAO/GGD-98-126. Washington, D.C.: August 31, 1998.

Regulatory Management: Implementation of Selected OMB 

Responsibilities Under the Paperwork Reduction Act. GAO/GGD-98-120. 

Washington, D.C.: July 9, 1998.

Regulatory Reform: Agencies Could Improve Development, 

Documentation, and Clarity of Regulatory Economic Analyses. 

GAO/RCED-98-142. Washington, D.C.: May 26, 1998.

Regulatory Reform: Implementation of Small Business Advocacy Review 

Panel Requirements. GAO/GGD-98-36. Washington, D.C.: March 18, 1998.

Congressional Review Act: Implementation and Coordination. GAO-TOGC-98-38. Washington, D.C.: March 10, 1998.

Regulatory Reform: Agencies’ Section 610 Review Notices Often Did Not 

Meet Statutory Requirements. GAO/T-GGD-98-64. Washington, D.C.: 

February 12, 1998.

Unfunded Mandates: Reform Act Has Had Little Effect on Agencies’ 

Rulemaking Actions. GAO/GGD-98-30. Washington, D.C.: February 4, 1998.

Regulatory Reform: Changes Made to Agencies’ Rules Are Not Always 

Clearly Documented. GAO/GGD-98-31. Washington, D.C.: January 8, 1998.

Regulatory Reform: Agencies’ Efforts to Eliminate and Revise Rules Yield 

Mixed Results. GAO/GGD-98-3. Washington, D.C.: October 2, 1997.

Regulatory Reform: Implementation of the Regulatory Review Executive 

Order. GAO-T-GGD-96-185. Washington, D.C.: September 25, 1996.

Regulatory Flexibility Act: Status of Agencies’ Compliance. GAO/GGD-94-

105. Washington, D.C.: April 27, 1994.
Page 17 GAO-06-228T 

Appendix I

What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

www.gao.gov/cgi-bin/getrpt?GAO-05-777.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Orice Williams 

(202) 512-5837 or williamso@gao.gov. 

Highlights of GAO-05-777, a report to the 

Chairman and Ranking Minority Member, 

Committee on Homeland Security and 

Governmental Affairs, U.S. Senate 

September 2005

ELECTRONIC RULEMAKING 

Progress Made in Developing Centralized 

E-Rulemaking System 

E-Rulemaking officials and the e-Rulemaking Initiative Executive Committee 

considered three alternative designs and chose to implement a centralized eRulemaking system based on cost savings, risks, and security. Officials 

relied on an analysis of the three alternatives using two cost and risk 

assessment models and a comparison of the alternatives to industry best 

practices. Prior to completing this analysis, officials estimated the 

centralized approach would save about $94 million over 3 years. They said 

when they developed this estimate, there was a lack of published 

information about costs related to paper or electronic rulemaking systems. 

They used their professional judgment and information about costs for 

developing and operating EPA’s paper and electronic systems, among other 

things, to develop the estimate. 

E-Rulemaking officials extensively collaborated with rulemaking agencies 

and most officials at the agencies we contacted thought the collaboration 

was effective. E-Rulemaking officials created a governance structure that 

included an executive committee, advisory board, and individual work 

groups that discussed how to develop the e-Rulemaking system. We 

contacted 14 of the 27 agencies serving on the advisory board and most felt 

their suggestions affected the system development process. Agency officials 

offered several examples to support their views, such as how their 

recommendations for changes to the system’s design were incorporated. 

While managing the development of the centralized system, e-Rulemaking 

officials followed all but a few of the key practices for successfully managing 

an initiative. For example, officials did not have written agreements with 

participating agencies that included system performance measures. The first 

agencies began migrating to the centralized system in May 2005 with the 

public scheduled to have access in September 2005. Eventually, all 

rulemaking agencies will migrate to the centralized system; however, the 

schedule is tentative due in part to funding issues. As agencies migrate, eRulemaking officials are planning changes to the system including adding 

capabilities that exist in electronic systems operated by some agencies. 

Centralized e-Rulemaking Process 

The E-Government Act of 2002 

requires regulatory agencies, to the 

extent practicable, to ensure there 

is a Web site the public can use to 

comment on the numerous 

proposed regulations that affect 

them. To accomplish this, the 

Office of Management and Budget 

named the Environmental 

Protection Agency (EPA) as the 

managing partner for developing a 

governmentwide e-Rulemaking 

system that the public can use for 

these purposes. Issues GAO was 

asked to address include: 

x EPA’s basis for selecting a 

centralized system, 

x how EPA collaborated 

with other agencies and 

agency views of that 

collaboration, and 

x whether EPA used key 

management practices 

when developing the 

system.

What GAO Recommends

GAO recommends that, to build on 

the success of this initiative, the 

Administrator of EPA, as managing 

partner of the initiative, take steps 

to ensure there are written 

agreements between EPA and 

participating agencies that include

performance measures that 

address issues such as system 

performance, maintenance, and 

cost savings. These measures are 

necessary to provide criteria for 

evaluating the effectiveness of the 

initiative. E-Rulemaking Initiative 

officials said they agree with GAO’s 

recommendation and they plan to 

implement it.
Page 18 GAO-06-228T 

What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

www.gao.gov/cgi-bin/getrpt?GAO-05-830T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact J. Christopher 

Mihm at (202) 512-6806 or mihmj@gao.gov. 

Highlights of GAO-05-830T, a testimony 

before the Subcommittee on the Federal 

Workforce and Agency Organization, 

Committee on Government Reform, 

House of Representatives 

July 13, 2005

21ST CENTURY CHALLENGES 

Transforming Government to Meet 

Current and Emerging Challenges 

Long-term fiscal challenges and other significant trends and challenges 

facing the United States provide the impetus for reexamining the base of the 

federal government. Our nation is on an imprudent and unsustainable fiscal 

path driven by known demographic trends and rising health care costs, and 

relatively low revenues as a percentage of the economy. Unless we take 

effective and timely action, we will face large and growing structural deficit 

shortfalls, eroding our ability to address the current and emerging needs 

competing for a share of a shrinking budget pie. At the same time, 

policymakers will need to confront a host of emerging forces and trends, 

such as changing security threats, increasing global interconnectedness, and 

a changing economy. To effectively address these challenges and trends, 

government cannot accept all of its existing programs, policies, functions, 

and activities as “givens.” Reexamining the base of all major existing federal 

spending and tax programs, policies, functions, and activities offers 

compelling opportunities to redress our current and projected fiscal 

imbalances while better positioning government to meet the new challenges 

and opportunities of this new century. 

In response, agencies need to change their cultures and create the capacity 

to become high-performing organizations, by implementing a more resultsoriented and performance-based approach to how they do business. To 

successfully transform, agencies must fundamentally reexamine their 

business processes, outmoded organizational structures, management 

approaches, and, in some cases, missions. GAO has hosted several forums 

to explore the change management practices that federal agencies can adopt 

to create high-performing organizations. For example, participants at a 

GAO forum broadly agreed on the key characteristics and capabilities of 

high-performing organizations, which can be grouped into four themes: 

• a clear, well-articulated, and compelling mission; 

• focus on needs of clients and customers; 

• strategic management of people; and 

• strategic use of partnerships. 

A successful reexamination of the base of the federal government will entail 

multiple approaches over a period of years. The reauthorization, 

appropriations, oversight, and budget processes should be used to review 

existing programs and policies. However, no single approach or institutional 

reform can address the myriad of questions and program areas that need to 

be revisited. GAO has recommended certain other initiatives to assist in the 

needed transformations. These include (1) development of a 

governmentwide strategic plan and key national indicators to assess the 

government’s performance, position, and progress; (2) implementing a 

framework for federal human capital reform; and (3) proposing specific 

transformational leadership models, such as creating a Chief Operating 

Officer/Chief Management Official with a term appointment at select 

agencies. 

The daunting challenges that face 

the nation in the 21st century 

establish the need for the 

transformation of government and 

demand fundamental changes in 

how federal agencies should meet 

these challenges by becoming 

flatter, more results-oriented, 

externally focused, partnershiporiented, and employee-enabling 

organizations. 

This testimony addresses how the 

long-term fiscal imbalance facing 

the United States, along with other 

significant trends and challenges, 

establish the case for change and 

the need to reexamine the base of 

the federal government; how 

federal agencies can transform into 

high-performing organizations; and 

how multiple approaches and 

selected initiatives can support the 

reexamination and transformation 

of the government and federal 

agencies to meet these 21st century 

challenges. 
Page 19 GAO-06-228T 

What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

www.gao.gov/cgi-bin/getrpt?GAO-05-424.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Linda Koontz at 

(202) 512-6240 or koontzl@gao.gov. 

Highlights of GAO-05-424, a report to 

congressional requesters 

May 2005

PAPERWORK REDUCTION ACT

New Approach May Be Needed to Reduce 

Government Burden on Public 

Governmentwide, agency CIOs generally reviewed information collections 

and certified that they met the standards in the act. However, GAO’s analysis 

of 12 case studies at the Internal Revenue Service (IRS) and the Departments 

of Veterans Affairs, Housing and Urban Development, and Labor showed 

that CIOs certified collections even though support was often missing or 

partial (see table). For example, in nine of the case studies, agencies did not 

provide support, as the law requires, for the standard that the collection was 

developed by an office with a plan and resources to use the information 

effectively. Because OMB instructions do not ask explicitly for this support, 

agencies generally did not address it. Further, although the law requires 

agencies both to publish notices in the Federal Register and to otherwise 

consult with the public, agencies governmentwide generally limited 

consultation to the publication of notices, which generated little public 

comment. Without appropriate support and public consultation, agencies 

have reduced assurance that collections satisfy the standards in the act. 

Processes outside the PRA review process, which are more rigorous and 

involve greater public outreach, have been set up by IRS and the 

Environmental Protection Agency (EPA), whose missions involve numerous 

information collections and whose management is focused on minimizing 

burden. For example, each year, IRS subjects a few forms to highly detailed, 

in-depth analyses, including extensive outreach to the public affected and 

the information users. IRS reports that this process—performed on forms 

that have undergone CIO review and received OMB approval—has reduced 

burden by over 200 million hours since 2002. In contrast, for the 12 case 

studies, the CIO review process did not reduce burden. Without rigorous 

evaluative processes, agencies are unlikely to achieve the PRA goal of 

minimizing burden while maximizing utility. 

Support Provided by Agencies for Paperwork Reduction Act Standards in 12 Case Studies 

 Support provided 

Standards: The information collection— Totala

Yes Partial No

Is necessary for the proper performance of agency functions. 12 6 60

Avoids unnecessary duplication. 11 2 27

Reduces burden on the public, including small entities. 12 5 70

Uses language that is understandable to respondents. 12 1 0 11

Will be compatible with respondents’ recordkeeping practices. 12 3 09

Indicates period for which records must be retained. 6 3 30

Gives required information (e.g., whether response is mandatory). 12 4 80

Was developed by an office with necessary plan and resources. 11 2 09

Uses appropriate statistical survey methodology (if applicable). 1 1 00

Makes appropriate use of information technology. 12 8 40

Total 101 35 30 36

Source: Paperwork Reduction Act, Pub. L. 104-13, 109 Stat. 173-4, sec. 3506(c)(3). 

a

The total is not always 12 because not all certifications applied to all collections. 

Americans spend billions of hours 

each year providing information to 

federal agencies by filling out 

information collections (forms, 

surveys, or questionnaires). A 

major aim of the Paperwork 

Reduction Act (PRA) is to balance 

the burden of these collections 

with their public benefit. Under the 

act, agencies’ Chief Information 

Officers (CIO) are responsible for 

reviewing information collections 

before they are submitted to the 

Office of Management and Budget 

(OMB) for approval. As part of this 

review, CIOs must certify that the 

collections meet 10 standards set 

forth in the act (see table). 

GAO was asked to assess, among 

other things, this review and 

certification process, including 

agencies’ efforts to consult with the 

public. To do this, GAO reviewed a 

governmentwide sample of 

collections, reviewed processes 

and collections at four agencies 

that account for a large proportion 

of burden, and performed case 

studies of 12 approved collections. 

What GAO Recommends

GAO recommends that OMB and 

the agencies take steps to improve 

review processes and compliance 

with the act. Also, the Congress 

may wish to consider mandating 

pilot projects to target some 

collections for rigorous analysis 

that includes public outreach. In 

commenting on a draft of this 

report, OMB and the agencies 

agreed with parts of the report and 

disagreed with others. 
Page 20 GAO-06-228T 

What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

www.gao.gov/cgi-bin/getrpt?GAO-05-454.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Orice M. 

Williams at (202) 512-5837, or 

williamso@gao.gov. 

Highlights of GAO-05-454, a report to the 

Chairman, Subcommittee on Oversight of 

Government Management, the Federal 

Workforce and the District of Columbia, 

Committee on Homeland Security and 

Governmental Affairs, U.S. Senate 

March 2005

UNFUNDED MANDATES 

Views Vary About Reform Act’s 

Strengths, Weaknesses, and Options 

for Improvement 

The parties GAO contacted provided a significant number of comments 

about UMRA, specifically, and federal mandates, generally. Their views often 

varied across and within the five sectors we identified (academic/think tank, 

public interest advocacy, business, federal agencies, and state and local 

governments). Overall, the numerous strengths, weaknesses and options for 

improvement identified during the review fell into several broad themes, 

including UMRA-specific issues such as coverage and enforcement, among 

others, and more general issues about the design, funding, and evaluation of 

federal mandates. First, UMRA coverage was, by far, the most frequently 

cited issue by parties from the various sectors. Parties across most sectors 

that provided comments said UMRA’s numerous definitions, exclusions, and 

exceptions leave out many federal actions that may significantly impact 

nonfederal entities and should be revisited. Among the most commonly 

suggested options were to expand UMRA’s coverage to include a broader set 

of actions by limiting the various exclusions and exceptions and lowering 

the cost thresholds, which would make more federal actions mandates under

UMRA. However, a few parties, primarily from the public interest advocacy 

sector, viewed UMRA’s narrow coverage as a strength that should be 

maintained. 

Second, parties from various sectors also raised a number of issues about 

federal mandates in general. In particular, they had strong views about the 

need for better evaluation and research of federal mandates and more 

complete estimates of both the direct and indirect costs of mandates on 

nonfederal entities. The most frequently suggested option to address these 

issues was more post-implementation evaluation of existing mandates or 

“look backs.” Such evaluations of the actual performance of mandates could 

enable policymakers to better understand mandates’ benefits, impacts and 

costs among other issues. In turn, developing such evaluation information 

could lead to the adjustment of existing mandate programs in terms of 

design and/or funding , perhaps resulting in more effective or efficient 

programs. 

Going forward, the issue of unfunded mandates raises broader questions 

about assigning fiscal responsibilities within our federal system. Federal and 

state governments face serious fiscal challenges both in the short and longer 

term. As GAO reported in its February 2005 report entitled 21st Century 

Challenges: Reexamining the Base of the Federal Government 

(GAO-05-325SP), the long-term fiscal challenges facing the federal budget 

and numerous other geopolitical changes challenging the continued 

relevance of existing programs and priorities warrant a national debate to 

review what the government does, how it does business and how it finances 

its priorities. Such a reexamination includes considering how responsibilities 

for financing public services are allocated and shared across the many 

nonfederal entities in the U.S. system as well. 

The Unfunded Mandates Reform 

Act of 1995 (UMRA) was enacted to

address concerns about federal 

statutes and regulations that 

require nonfederal parties to 

expend resources to achieve 

legislative goals without being 

provided federal funding to cover 

the costs. UMRA generates 

information about the nature and 

size of potential federal mandates 

on nonfederal entities to assist 

Congress and agency decision 

makers in their consideration of 

proposed legislation and 

regulations. However, it does not 

preclude the implementation of 

such mandates.

At various times in its 10-year 

history, Congress has considered 

legislation to amend various 

aspects of the act to address 

ongoing questions about its 

effectiveness. Most recently, GAO 

was asked to consult with a diverse 

group of parties familiar with the 

act and to report their views on 

(1) the significant strengths and 

weaknesses of UMRA as the 

framework for addressing mandate 

issues and (2) potential options for 

reinforcing the strengths or 

addressing the weaknesses. To 

address these objectives, we 

obtained information from 

52 organizations and individuals 

reflecting a diverse range of 

viewpoints. GAO analyzed the 

information acquired and organized 

it into broad themes for analytical 

and reporting purposes. 

GAO makes no recommendations 

in this report. 
Page 21 GAO-06-228T 

As of June 2002, 16 of 80 federal agencies with civil penalties covered by the 

Inflation Adjustment Act had not made the required initial adjustments to 

their penalties. Nineteen other agencies had not made required subsequent 

adjustments, and several other agencies had made incorrect adjustments. 

The act does not give any agency the authority to monitor compliance or to 

provide guidance to agencies. More important, several provisions of the act 

have prevented some agencies from fully adjusting their penalties for 

inflation. One provision limited the agencies’ first adjustments to 10 percent 

of the penalty amounts, even if the penalties were decades old and hundreds 

of percent behind inflation. The resultant “inflation gap” can never be 

corrected under the statute and grows with each subsequent adjustment. 

(The figure below illustrates the effect of the cap on one agency’s $1,000 

penalty set in 1958.) Also, the act’s calculation and rounding procedures 

require agencies to lose a year of inflation each time they adjust their 

penalties, and can prevent some agencies from making adjustments until 

inflation increases by 45 percent or more (i.e., 15 years or more at recent 

rates of inflation). Finally, the act exempts penalties under certain statutes 

from its requirements entirely. Consequently, more than 100 exempted 

penalties have declined in value by 50 percent or more since Congress last 

set them. 

Ten Percent Cap on Initial Penalty Adjustments Resulted in Large Inflation Gaps 

CIVIL PENALTIES 

Agencies Unable to Fully Adjust Penalties 

for Inflation Under Current Law 

www.gao.gov/cgi-bin/getrpt?GAO-03-409.

To view the full report, including the scope 

and methodology, click on the link above. 

For more information, contact Victor 

Rezendes (202) 512-6806 or 

rezendesv@gao.gov. 

Highlights of GAO-03-409, a report to the 

Senate Committee on Governmental 

Affairs and the House Committee on 

Government Reform 

March 2003

Civil penalties are an important 

element of regulatory enforcement, 

allowing agencies to punish 

violators appropriately and to serve 

as a deterrent to future violations. 

In 1996, Congress enacted the 

Inflation Adjustment Act to require 

agencies to adjust certain penalties 

for inflation. GAO assessed federal 

agencies’ compliance with the act 

and whether provisions in the act 

have prevented agencies from 

keeping their penalties in pace with 

inflation. 

Congress may wish to consider 

amending the act to (1) require or 

permit agencies to adjust their 

penalties for lost inflation; (2) 

make the calculation and rounding 

procedures more consistent with 

changes in inflation; (3) permit 

agencies with exempt penalties to 

adjust them for inflation; and (4) 

give some agency the responsibility 

to monitor compliance and provide 

guidance. 

The Department of Justice, the 

Department of the Treasury, and 

the Office of Management and 

Budget did not comment on the 

first three matters for 

congressional consideration. The 

agencies suggested changes to the 

fourth matter, but we did not make 

those changes. 

(450455)
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